ACTBAS1 Reviewer 2 - ADJUSTING ENTRY 1) Accruals a) Expense...

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ADJUSTING ENTRY 1) Accruals a) Expense – already incurred during the period but not yet paid or recorded. Example: The rent of ABC Company of P4500 for the month had been incurred as of December 31 but was unpaid at year end. AJE: Rent Expense P4500- Rent Payable P4500- To recognize rent expense. ** Always debit expense account and credit liability account. b) Income – already rendered service but no amount of payment has been collected. Example: Tantiongco Company has a 90-day note received from a customer. Interest earned on the note but not yet received at year end amounted to P1500. AJE: Interest Receivable P1500- Interest Income P1500- ** Always debit asset account (receivable) and credit the income account. *** AJE for accrued income is made to avoid understatement of income and asset. 2) Prepaid Expenses – expenses that are paid in advance. A) Asset Method – original entry made is charged to an asset account. For that reason, we have to recognize the expired/used portion of the asset. Example: On Aug 1 2009, ABC Company paid one year advertising contract for P7200. The amount is debited to Prepaid Advertising. JE: Prepaid Advertising P7200 Cash P7200 Paid one year advertising contract AJE: Advertising Expense P3000 Prepaid Advertising P3000 To recognize expired portion of Advertising expense (P7200 x 5/12) 5 months expired Aug1`09 Dec31 Aug1 `10
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DEF Company’s Unused Supplies account shows a balance of P2650. At year end, inventory of supplies revealed a total of P1090. AJE: Supplies Expense P1560- P2650 - P1560 Unused Supplies P1560- Dec 31- P1090 To recognize Supplies expense ** Unused supplies amounted to P2650. But at year end, it should be P1090. That is why we credit P1560 of Unused supplies.
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This note was uploaded on 06/26/2011 for the course ACCT 101 taught by Professor Gobaco during the Spring '11 term at De La Salle University.

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ACTBAS1 Reviewer 2 - ADJUSTING ENTRY 1) Accruals a) Expense...

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